Friday, January 11, 2008


It's a wee bit of a problem when a major bond insurer has to pay such high rates.

NEW YORK, Jan 11 (Reuters) - A planned $1 billion debt sale by a unit of MBIA Inc (MBI.N: Quote, Profile, Research) may yield about 14 percent, higher than levels discussed on Thursday, according to an investor familiar with the deal on Friday.

The issue of so-called surplus notes by MBIA Insurance Corp. is part of an effort by the bond insurer to buoy capital and preserve its "AAA" rating. Investors on Thursday said dealers were negotiating a coupon rate between 9 percent and 12 percent, nearly double what similarly rated bonds offer.

Surplus notes, unique to insurers, can bolster MBIA's balance sheet since they can be classified as equity.

...adding, the high rate reflects risk of nonpayment, which reflects the fact that the bond insurer isn't exactly on solid footing, which means all of those insured bonds aren't really insured.